Why this fund manager believes ASX healthcare shares could recover from coronavirus setbacks and outperform in 2021.
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ASX healthcare shares could outperform in 2021, according to the Sydney-based portfolio manager of American Century Investments.
This is despite a drop in healthcare spending this year after many nations, including Australia, postponed non-urgent care due to COVID-19.
The fund manager expects government healthcare spending to increase significantly, as COVID-19 vaccines start to roll out globally and demand for aged care increases over the longer term.
What else did the fundie say
According to American Century Investments’ Michael Li, healthcare stocks have the potential for good relative performance based on short and long-term factors.
He cited a report from the Economist Intelligence Unit, which said that although healthcare spending had fallen during the pandemic, a recovery is expected to gather pace in 2021.
The report said that healthcare spending would rise globally by 5.5% in US dollar terms, driven by additional expenditures as effective vaccines and treatments for coronavirus become available during the year.
Li estimates that the sector’s earnings will grow at double digits in the next two years, as healthcare companies as a group are currently valued at a discount to the market.
Li also said that the healthcare sector is set to benefit over the longer term:
From a long-term perspective, healthcare investors appreciate the significant discovery and innovation in the sector combined with ageing global demographics. That combination is driving the capability of some companies to grow at sustained, above-average rates.
According to the Australian Bureau of Statistics, the 65 and over age group currently makes up about 16% of the population, and is projected to increase more rapidly over the next decade.
Which healthcare shares on the ASX will benefit
According to Morningstar analysts, companies such as CSL Limited (ASX: CSL) and ResMed Inc (ASX: RMD) have the most to gain from greater healthcare spending and chronic disease, with Australian healthcare expenditure growth sitting higher than the OECD median.
Morningstar director of equity research Mathew Hodge has forecast double-digit compound revenue growth for CSL in the next five years, driven by the immunoglobulin portfolio.
“The plasma industry is changing, and CSL is broadening its scope to include emerging therapies,” Hodge says.
Morningstar also believes that ResMed’s strategy, which focuses on respiratory devices, will see it well-placed to benefit from the major healthcare trends promoting value-based treatment, and providing care in lower cost settings.
About the CSL share price and ResMed share price
The CSL share price is up 5% in 2020, despite the recent setback on its COVID-19 vaccine testing plans. The Resmed share price, on the other hand, has lifted 24% on a year-to-date basis.
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Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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